Fundamentals of acctg part 1

SYLLABUS FOR:

FUNDAMENTALS OF

ACCOUNTING (ACCTG 1A&B)

Introduction to Accounting

Part 1

Definition, purpose and nature of accounting

Distinction between accounting and bookkeepingAccounting as profession and other specialized fields of accounting

Users of accounting information


Part 1

Kinds of business organizations and nature of business operationsThe financial statements of business organizations

Elements of financial statements and account titles used in the financial statement

6 hours

Accounting for Service Business

Part 2

The accounting equation

Business transactions and source documentsAccounting concepts and principles related to recording of business transactionsAnalysis of business transactions


Part 2

Double-entry bookkeeping; rules of debit and creditRecording of transactions in a two-column journal

Posting of transactions to the general ledger


Part 2

Preparing a Trial Balance

Preparing Adjusting entries for prepayments:

Asset methodExpense method

Preparing Adjusting entries for deferred revenues:

Liability methodRevenue method


Part 2

Preparing Adjusting entries for:Accrued expenses

Accrued income

Allowance methodDirect write-off

DepreciationUncollectible accounts expense


Part 2

Worksheet preparation

Financial statement preparation

Income StatementStatement of Changes in Equity

Balance SheetReport formAccount form

Cash Flow Statement (Direct method)


Part 2

Journalizing and Posting of Adjusting and Closing entries

Ruling and balancing of accountsPost-closing trial balance

Reversing entries

34 hours

Accounting for Merchandising

Business

Part 3

34 hours

Accounting for Manufacturing

Business

Part 4

6 hours

Accounting for Cash

Part 5

8 hours


A service entity that measures, processes and communicates

information about the economic activities and financial condition of

a business, that is useful in making decisions.

Is the art of recording, classifying and summarizing in a significant manner and in terms of money,

transactions and events which are, in part at least, of a financial

character, and interpreting the results thereof.

Basic Purpose of Accounting

To supply financial information to users of the information to help them

make informed judgments and better decisions.Presented thru

the use of financial

statements

Governed by a set of principles known as GAAP

Basic Accounting

Concepts

Business Entity

Principle

States that the business is considered distinct and separate

from the owner or owners of the business.

Dual-effect of Business

For every business transaction, accounting assumes that the value received is equal to the

value given up.

Matching Principle

Profit or loss can only be measured if there is proper matching of the income earned and expenses incurred within one accounting period.

Accrual Basis

Under this principle, income is recognized at the time it is earned regardless of when cash is received. Expenses are recognized when incurred, regardless of when cash is paid.

Cash Basis

Under this principle, income is recognized when cash is received and expenses are recognized when cash is paid.

Sample Cases on Accrual vs. Cash

BasisJune 1 – received from Ms. Heart an order for flowers to be delivered on June 5.June 5 – flowers were delivered.June 7 – Cash payment received.

Income will be recognized on:

Accrual basis -- June 5

Cash basis -- June 7


BasisJune 1 – received from Ms. Heart an order for flowers to be delivered on June 5.June 1 – Ms. Heart paid the flowers.

June 5 – Flowers were delivered.

Income will be recognized on:

Accrual basis -- June 5

Cash basis -- June 1


BasisJan 2, – received MERALCO billing, P5,0002012 for Dec 2011 electricity chargesJan 7 – The company paid the bill.

Expense will be recognized on:

Accrual basis -- December 2011Cash basis -- June 7


BasisDec 27, – paid P6,000 for the insurance of2011 company building for 1 year

(Jan to Dec 2012).Expense will be recognized on:

Accrual basis -- Jan to Dec 2012Cash basis -- Dec 27, 2011

Basic Accounting

Concepts

Stable Monetary Unit

Under this principle, financial information can be qualified and

expressed in a uniform means of

measurement.

Periodicity

This concept assumes that the operating life of

an enterprise may be conveniently divided into

time periods of equal length (accounting

periods)

Going Concern

This concept assumes that an enterprise is a going

concern and will continue in operation for the foreseeable future. Furthermore, the

enterprise has neither the intention nor the need to

liquidate or materially scale down its operations.

Bookkeeping vs. Accounting

Bookkeeping is an accounting support function that involves the systematic recording of business transactions in financial terms.

Accountants design the accounting information system the

bookkeeper will use to record these transactions.

Bookkeeper’s work is routine when compared to the

accountant’s.

Accountants tend to focus on analyzing and interpreting

information.

Accountants may also supervise the work of

bookkeepers and prepare financial statements and tax

returns

Specialized Fields of

Accounting

AUDITING

Accounting profession’s most significant service

to the public.

An audit is the independent

examination that ensures the fairness and reliability of the reports

that management submits to users outside

the business entity


Accounting

COST ACCOUNTING

Deals with the collection, allocation,

and control of the cost of producing specific goods and services.

FINANCIAL ACCOUNTING

Focused on the recording of business transactions and the

periodic preparation of reports on financial

position and results of operations


Accounting

INTERNAL AUDITING

Concerned with the examination of the information system,

records and operations of the entity to ensure the effectiveness and

efficiency of operations and the integrity of

records.


Accounting

GOVERNMENTACCOUNTING

Concerned with the identification of the sources and uses of resources consistent with the provisions of

city, municipal, provincial or national

laws.

TAX ACCOUNTIN

G

Includes the preparation of tax returns and the

consideration of the tax consequences of

business transactions.


Accounting

MGMT CONSULTIN

G

Catchall term that describes the wide

scope of advice CPAs provide to the

businesses

INTERNATIONAL ACCOUNTING

Addresses the special problems associated with the international trade of multinational

business organizations.

Users of Accounting Information

PublicEmployeesGovernmentCustomersLenders & SuppliersInvestors

Known as providers of risk capital.

Help them determine whether to buy, hold

or sell their investment.

Help them assess ability of company to

pay dividends

Know the stability and profitability of their employers.

Is the employer capable of providing good compensation, benefits and opportunities.

Help them determine whether amounts owing to them will be paid when due.

Information about the continuance of an enterprise – attachment to the product.

Allocation of resources

Regulate activities of the enterprise and determine taxation policies.

Range of its activities and contribution to local economy.

Business Ownership

Sole Proprietorship

Partnership

Corporation

Sole Proprietorshi

p

Advantages Easily and inexpensively

formed.

Subject to few government regulations.

Avoids corporate income taxes.

Limitations Difficult to obtain large sums of

capital.

Unlimited personal liability on

business debts.

Limited business life.

Partnership

AdvantagesLow cost

and ease of formation.

Avoids corporate income taxes.

Limitations Difficult to obtain large sums of

capital.

Unlimited liability on

business debts.

Limited business life.

Difficulty of transferring ownership.

Corporation

Advantages Unlimited lifeEasy transferability

of ownership interest.

Limited liability.

LimitationsCorporate

earnings are subject to double

taxation.

Subject to stringent government regulations.

Forms of Business Enterprises

Service Business

Simplest form of business.

Provide services in exchange for fees, rent interest or royalties.

Merchandising or Trading

Business

Purchase goods from suppliers and , without altering the state of the goods bought, sell the same at a higher price than cost.Manufacturin

g Business

Buys raw materials and supplies from suppliers, uses the skills of workmen and convert these materials into finished goods and sells to customers.

Financial Statements of Business

Organizations

Statement of Financial Position

Statement of Comprehensive

Income

Statement of Changes in EquityStatement of Cash

Flow

Notes to the Financial Statements

Information Provided by Financial Statements

Statement of Financial Position

Liquidity

Solvency

Capacity for Adaptation

SolvencyCapacity for Adaptation

Availability of cash in the near future to cover currently maturing liabilities or obligations

Availability of cash over the long term to meet obligations when they fall due

The ability of the enterprise to use its available cash for unexpected requirements and investment opportunities.

Information Provided by Financial Statements Statement of

Comprehensive Income

Whether a company is able to generate profit or incur a loss

during an accounting period


Statement of Changes in Equity

Shows the balance of the owner’s investment in the business at the beginning of the

accounting period, additional investment made, withdrawals for personal use, the

profit or loss for the period, and the balance of the owner’s investment at the end of the

accounting period


Statement of Cash Flow

Summarizes cash activity (inflow and outflow) for the period classified according to the

nature of activity – operating , investing or financing and provides explanation, in

financial terms, how cash of the enterprise increased or decreased as compared to the

previous accounting period.

Elements of the Financial Statements

Information Provided

Financial Position Profitability

Changes in Finl Position

Financial Statemen

t

Statement of Financial

Position

Statement of Changes in Equity & Cash Flow

Statement of Income

Elements Involved

AssetsLiabilities

Equity

All elements

IncomeExpense

s

Account Titles – Statement of Financial

PositionASSETS

Cash Money on hand or in Banks and other items considered as a medium of exchange

Accounts Receivable

Valid claims from customers or clients arising from provision of services or delivery of goods in the course of business that have not yet been paid (on account or on credit)

Supplies on hand

Supplies purchased which are unused as of reporting date

Merchandise Inventory

Goods bought from suppliers intended for resale to customers at a price higher than cost.

Property, Plant and Equipment

Long-lived assets acquired for use in business operations- land, building, machinery, furniture, fixtures, equipment, delivery vehicles.


PositionLIABILITIE

S

Accounts Payable

Amounts due or payable to suppliers for goods purchased on account or for service received on account.

Salaries Payable

Salaries due to employees which are unpaid as of reporting date.

Utilities Payable

Amounts due or payable to utility companies for electricity, heat, light and water charges.

Advances from

customers

Amounts received from customers in advance for the delivery of goods or services

Loans Payable

Obligations to lenders to be paid on demand or at a specified agreed future date


PositionEQUITY

The claim of the owner of the enterprise to the assets of the business after all the claims of creditors have been settled or

paid.

Account Titles – Statement of Comprehensive Income

INCOME

Refers to increases in economic benefits during the accounting period in the form of inflows or

enhancements of assets or decrease of liabilities that result in

increase in equity.

RevenueGain

Arises in the course of the ordinary activities of

an enterprise.

May or may not arise in the course of the

ordinary activities of an enterprise.


EXPENSES

Refers to decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or incidences of liabilities that result in decrease in equity.


EXPENSES

Salaries and employee benefitsRent expenseUtilities expenseCost of used suppliesTaxes, business permits and Licenses

Professional feesCommissions paid to salespersons

Advertising and promotion expense

End of Part 1

Fundamentals of acctg part 1

Business

Transcript of Fundamentals of acctg part 1